Hurricane-Related Claims Force American Superior Into Receivership

Florida state regulators have placed American Superior Insurance Co. into receivership (See Southeast News Sept. 29) after it became overwhelmed by homeowners claims. The small company with offices in Plantation, Fla., has about 60,000 policyholders. The state will take over its operations and said all claims would be paid.

American Superior voluntarily consented to go into receivership after “unprecedented storm losses” on about 7,000 storm-related claims in 53 Florida counties, the Florida Department of Financial Services said.

The state will serve as receiver, taking over its operations and processing claims. The company’s premium volume was $34 million last year, less than 1 percent of the state’s home insurance market.

“The company did not have enough workers and technology to process the claims, said Nina Banister, a spokeswoman for the state Department of Financial Services. “The company has cash to pay claims, but it is unclear whether the company could handle a large number of additional claims.

“At least 741 of the company’s claims are in Volusia and Flagler counties,” Banister said. “They have a lot of cash on hand to pay claims. Whether they have enough to pay all the claims they are facing, we’ll see.”

Bob Lotane, a spokesman for the state Office of Insurance Regulation, said he expects some insurance companies to seek rate increases in parts of the state. One of the reasons is that the storms caused severe damage in regions — such as Central Florida — that in the past had been considered relatively safe from hurricanes.

“Obviously, there are some new realities in the insurance market,” Lotane said.

The state has hired more claims adjusters to handle the company’s increased work load from Hurricanes Charley, Frances, Ivan and Jeanne. The company won’t write any new business during rehabilitation, but it will renew existing policies, officials said. No policyholders will be canceled.

If state supervision doesn’t resolve the company’s financial problems, it could be liquidated. If American Superior went out of business, unpaid claims would be covered by the Florida Insurance Guaranty Association.

“Our No. 1 priority will be to take care of policyholders with storm claims,” said Tom Gallagher, the state’s chief financial officer.
A phone at the company would not accept messages early Friday.

After Hurricane Andrew in 1992, 12 homeowners insurance companies went out of business and a total of 22 companies, including automobile insurers, were put under state management.
With four hurricanes swallowing up money set aside to cover disasters, at least some insurance companies likely will seek to raise rates next year as they try to rebound financially.

“Our number one priority will be to take care of policyholders with storm claims,” said state Chief Financial Officer Tom Gallagher, who oversees the department and is a key player on insurance issues.

With Jeanne ripping through the state last weekend, insurance companies do not have exact amounts of how much they will have to pay out in claims. Sam Miller, executive vice president of the Florida Insurance Council, said insured losses from the four hurricanes are estimated at $15 billion to $20 billion.

State and industry officials said that any insurance rate increases likely would not happen until at least early 2005.

Perhaps the most wide-ranging increases would come if the state-backed Citizens Property Insurance Corp. faces a deficit. Citizens sells policies in high-risk areas, such as coastal areas, that private insurers won’t cover.

If Citizens has a deficit, it likely would have to borrow money that would be paid back through charges on policyholders throughout the state — whether they have Citizens policies or not.

Spokeswoman Susanne Murphy said Citizens has estimated claims of $1.8 billion, which is more than its reserves. But she said Citizens likely will not know until December whether it needs to borrow the extra money.

Private insurers and utility companies, meanwhile, would have to obtain the approval of state regulators before they could raise rates.
Insurers would not be able to seek increases to make up losses from this year’s hurricanes. Instead, they would have to justify rate hikes by using computer models to show how they could face losses in the future.

That is where the unexpected damage this year in areas such as Central Florida could be important. If insurance companies view those areas as increasingly risky, it could lead to attempts to raise rates.

“The question will be is it an aberration?” said Tom Hagerty, a spokesman for State Farm Florida Insurance Co., the largest property-insurer in the state. “Or is this a sign of more and more things to come?”